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Wells Fargo has reaffirmed its Equal Weight rating for Tesla Inc (NASDAQ:TSLA) but has lowered its 12-month price target on the stock from $265.00 to $260.00, just ahead of the electric automaker’s scheduled 3Q earnings report on October 18th.
The company recently disclosed third-quarter delivery figures, which fell short of consensus estimates by approximately 20,000 vehicles. Tesla’s management attributed this delivery gap to temporary plant shutdowns related to the Model 3 refresh.
As a consequence of these lower delivery volumes and ongoing price adjustments, Wells Fargo anticipates that Tesla’s automotive gross margin for the third quarter (excluding credits) will be approximately 16.3%, a drop from the consensus estimate of 17.9%.
Moreover, Wells Fargo predicts a 20% decrease in third-quarter average pricing compared to its peak levels, with automotive gross profit per unit (excluding electric vehicle credits) being cut in half from its previous highs.
To achieve its target of 1.8 million deliveries in fiscal year 2023, Tesla will need to deliver around 475,000 units in the fourth quarter, requiring near-maximum utilization of its global production capacity. While the Model 3 and Model Y refreshes and the potential rollout of the Cybertruck with reportedly 1.9 million preorders could stimulate demand, Wells Fargo analysts express reservations about whether these factors alone will suffice.
“We see higher near-term delivery growth driven by recent price cuts. However, we are cautious on hitting margin targets, and we see the risk of more price cuts later in the year,” noted the analysts in a recent report.
Wells Fargo has accordingly adjusted its earnings per share (EPS) estimates, lowering the 2023 estimate from $3.20 to $2.95 due to price reductions and lower deliveries. The 2024 estimate was also reduced from $3.55 to $3.25, the 2025 estimate from $3.75 to $3.60, and the 2026 estimate from $4.30 to $4.20, all reflecting the impact of lower pricing.
In premarket trading, Tesla’s shares are down by 1.82% on Monday morning.
